Furchtgott-Roth: Title II Could Mean Internet 'Stealth' Tax

Former Republican FCC commissioner Harold Furchtgott-Roth says the FCC would be levying a new "stealth" tax on ISPs if it decides to reclassify them as common carrier telecom services under Title II.

While advocates of Title II classification to buttress new open Internet rules argue the FCC could forbear from whatever common carrier regs it did not want to apply, Furchtgott-Roth argues in a piece for Forbes that the FCC probably does not have the discretion to tax some interstate telecommunications services, but not others, to collect money for the Universal Service Fund.

"Inevitably, network neutrality with ‘telecommunications services’ will lead to new fees..." he says. That could translate to billions of new dollars to fund new programs without having to go hat in hand to Congress, he suggests, and would be "perhaps the largest, one-time tax increase on the Internet."

He said that while the Congress has extended a law prohibiting new state and local taxes on broadband access, FCC reclassification under Title II would undermine the spirit of that law, the Internet Tax Freedom Act, by extending federal fees to ISPS.

"These fees could be as harmful, if not more so, than any that state and local governments might imagine. Yet many in Congress, unaware of the fees that might be applied to the Internet, applaud the FCC," he said.

Furchtgott-Roth is currently a senior fellow at the Hudson Institute and president of consulting firm Furchtgott-Roth Economic Enterprises. He is also founder of the Center for the Economics of the Internet.

Harold Feld, senior VP at net neutrality rule fan Public Knowledge, calls that argument "silly" and essentially an effort by anti-net neutrality forces to throw any argument at the FCC in hopes one will stick.

"The FCC sets fees on a service by service basis, depending on a variety of factors. Merely reclassifying broadband as a Title II service would not automatically subject broadband service to fees. The FCC would need to separately raise the issue as part of its regular proceeding on regulatory fees," he says. "So there would be no automatic inclusion, and any fees imposed on broadband services would need to be justified (and could be resisted) in a separate proceeding."

He says it is true that when DSL was classified as a Title II service, they paid a USF fee that was passed along to customers on their phone bills. "But even this would need to be reinstated in a separate proceeding. Not all Title II services pay into the contribution pool."